Lease to Buy – Good or Bad idea?

Lease to Buy – Good or Bad idea?

Buying a car at lease end can be good or bad depending on a number of factors that are unique to each vehicle and every lessee. The right answer to that question depends on who the person is that’s thinking about that scenario, and what their priorities are.

Generally speaking, leasing a car with the intention of buying it at lease end is a more expensive transaction than just buying the car to begin with, and usually by a couple thousand dollars. If you’re not a cash buyer, you make payments during the course of the lease, and continued payments once the lease is over to cover the ‘balance due’ or the residual value of the car. Most times, the combination of those payments is greater than the total of payments when a vehicle is purchased at the onset.

That, however, is not always the case. Sometimes, the lease money factor (interest rate) for a vehicle is lower than any available finance rate for the same car. In that scenario, and contrary to what most might think, it is generally less expensive overall to lease the car, and then buy the car at lease end. For example, if the lease rate for a vehicle is below 1%, and the best available finance rate is 3%, this scenario could cost less overall than buying the vehicle new.

For some, leasing a car and then buying it at lease end, even when it is more expensive, makes sense for their financial situation. Doing so can create a scenario where a person can maintain a comfortable payment for the entire time they are paying for the vehicle. For a person limited to a $350 payment, for instance, having that payment for 7 years (lease payments for 3, and finance payments for 4 totaling $29400) is more comfortable than having finance payments of $450 for 5 years for the same car (totaling $27000). Sure, this person makes 2 additional years of payments, and they are certainly spending more, but the payments they make are sustainable – an opportunity cost, if you will.

‘Leasing to buy’ can also be a good option for those looking for three year old cars. Here’s the thinking: in a lease, you pay for depreciation. At lease end, and once that depreciation is paid, a lessee has the ability (sometimes) to buy their own three year old car for below market value, and for less than they may have found a comparable car three years earlier. In other words, they put their purchase on ‘pause’ for three years, and in doing so, create an opportunity to buy a car for far less than other comparable cars. And, because it was their own from the start, there’s no guesswork in figuring out the history of the car.

So, you see, leasing to buy isn’t all bad, but whether it’s a good or bad, right or wrong, hinges on many different factors, some of which are personal, others financial, and still more that are tied to the vehicle itself and the manufacturers’ leasing programs.

Leasing to buy can be a very complicated and confusing decision to make if you don’t know how to do the math. No matter what your priorities are, let us know if leasing to buy is something that you’re considering, or haven’t ever considered, but might. We’ll be the first to tell you if it makes sense for your situation. And, we’ll ALWAYS provide you with unbiased advice to help you make a decision that’s right for you.